Definition of Withholding Allowance

Withholding allowance is an employee’s claims for exemption in withholdings from his/her income. If there are more allowances that an employee claims in W-4 form, then less amount will be deducted from his/her salary and vice-versa. The information in W-4 form is used by an employer to determine how much amount should be deducted from an employee’s income.

Explanation of Withholding Allowance

Adjusting W-4 Form

An employee can adjust his/her withholdings at any time during the year; he/she just need to go to the payroll office and fill a new W-4 form. W-4 is used by an organization to determine how much money should be deducted from an employee’s salary.  If an employee claims for more allowances in W-4, then less deduction will be made from a salary.  In case of claiming excess allowances, a penalty must be paid by an employee at the time of annual tax return. On contrary, if an employee does not have an adequate withheld from a paycheck, then he/she can request the organization to withhold an added dollar amount.